Setting up a savings plan
Setting savings goals for yourself - whether they're large or small, short or long term - can turn the act of saving from being a drag into something exciting and motivating.
Setting savings goals for yourself - whether they're large or small, short or long term - can turn the act of saving from being a drag into something exciting and motivating. Your goal could be anything from a holiday or a deposit on a house to planning for a comfortable retirement.
Put this savings plan into action and you could be on your way to achieving your goals sooner than you think.
1. Setting savings goals
Do you have any goals in mind? You can go to town on this one. What would you like to achieve? Take off on a world trip or buy your dream car? Perhaps you'd like to get a head-start on Christmas? Or maybe it's more important to you to save for your children's education.
Whatever your goals, write them down. Once you've got them onto paper you can you can divide them into long and short term goals, and start prioritising what you'd like to save towards first. Unless there's something that you've really got your heart set on, perhaps choose something easier first - that way you'll see the results sooner.
2. Setting targets
Time to get specific. Put some actual figures and dates next to your goals. So if your goal is to go to Thailand for two weeks, find out how much that's going to cost. If you want to get a head start on the Christmas presents, do a shopping list and work out how much you'll need to save. Whatever your goal is, put some figures next to it.
If you're saving for something long term or larger - such as a home deposit - work out what amount you're likely to need.
Rather than leaving your plan open-ended, put some target dates on when you'd like to achieve your goal. Give yourself enough time to save for it.
3. Work out how much you'll need to save on a regular basis
If you know how much you'll need to save and when you need to save it by, the next step is to work out a regular savings plan.
Take the example of the holiday above. Say you've worked out you'll need to save $4,000 for your two weeks in Thailand and you want to go in 18 months time. That works out at around $225 per month, or about $55 a week.
Going with this example, you now know how much you need to save, when you need it by and how much you need to save on a weekly or monthly basis.
4. Check your budget
Take a look at your budget to see if you'll be able to reach your goal in the timeframe set - it's important your goals are realistic and obtainable, otherwise you'll be setting yourself up for disappointment.
If you haven't drawn up a budget before, now's a good time to get underway - you'll need one so you know that you can afford your savings plan without missing out on paying for essentials that you need.
5. Review your current spending
Setting up a budget isn't just about working out what money comes in and what money goes out, it's also an opportunity to review how you're spending money.
Take a look at expenses. Some may be fixed such as your mortgage, but chances are you'll find different ways where you can cut back. You might be surprised by how much you spend on entertainment and eating out - this might be an area where you're able to spend less and put more into savings.
Should you be saving or paying off debt?
In a sense, paying off debt can be considered a savings plan. In fact, a goal of paying off your credit card, for example, is a financially wise idea. And considering that credit card interest rates can be over 20% p.a., it makes perfect sense to make this a priority.
Look at your own finances. If you've got a lot of outstanding debt, it might be just as rewarding (if not more) to see the total reduced over time as it is to see your savings grow. And remember, once you've paid off outstanding debt, that's money you can then put into savings.
6. Set up a savings account
Leaving your savings sitting in your everyday bank account can make it too easy to spend. Choose a savings account that will reward you for saving. Some even pay you bonus interest if you meet certain conditions such as a minimum monthly deposit and don't make any withdrawals within that month.
Setting up regular payments to your savings account is quick, easy and can help you reach your goals faster. Check how you could set up a scheduled transfer from your transaction account to your savings account to help grow your savings.
7. Review your plan
Keep track of your progress. Keep tabs on your savings plan to make sure you're on track. You might experience some unexpected changes to your income or expenses, either positive or negative.
If you end up with more cash to spare, you could reach your goal faster by making higher contributions, or you could even set up a second savings plan for another goal.
Things you should know
It's important to read the detail about the conditions and any fees or charges that apply to any financial product before you decide to apply for it. Check the eligibility criteria too. Ask the product issuer for a copy of these. Credit criteria apply to approval of credit products.
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